Sales declined, while profits grew | KPMG | NL

Sales declined, while profits grew

Sales declined, while profits grew

How did Reed Elsevier pull this off?

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In 2015, sales of the Anglo-Dutch company, Reed Elsevier (RELX since 2015), declined while their profits grew.  What happened over five years?

Financial year 2009 2014
Turnover £ 6 billion  £ 5.7 billion 
Operational profit £ 1.57 billion  £ 1.74 billion 
Print share of turnover 27% 18%
Online share of turnover 59% 66%

 

Revenue of publishing group Reed Elsevier, known for The Lancet, LexisNexis and Dutch current affairs magazine Elsevier was an imposing GPB 6 billion in 2009. Five years later, the group generated GBP 5.7 billion in turnover. Profits show a reverse picture: GBP 1.57 million in 2009, and GBP 1.739 million in 2014. Despite a decline in turnover of GBP 298 million, the company still succeeded in increasing profits by GBP 169 million. 

Print versus online

In 2008 Reed Elsevier tried to sell off its professional publications division, an unsuccessful attempt because of the credit crunch. Since then, many small professional journals have been sold to small publishers. In 2012, the group sold Variety, its top American title. There were also sales in the Netherlands: at the end of 2014, Reed Elsevier sold Misset Horeca and Distrifood to publisher Vakmedianet.

Last year Reed Elsevier announced it wanted to sell its current affairs magazine Elsevier. These decisions all fit the company’s strategy to make the transition from a print publisher to a data provider in knowledge-intensive sectors such as technology and health. In 2009, the printing division’s turnover was 27 per cent, while online was 59 per cent. Five years later, the company still generated 18 per cent from print sales and almost two-thirds from the online segment.

From information provider to data analyst

The chosen direction to data provider on its own is not enough. Reed Elsevier employs around 29,000 people, 8,000 of whom now have a background as IT specialist or data analyst. In other words, the group not only provides information but also sells data analyses.

The choice to offer data analysis has certainly paid off. In 2006 Reed Elsevier became a shareholder in Palentir builder software, which is allegedly used by the US secret services to track down terror networks. It’s apparently also used for dismantling fraudulent practices, such as the Bernard Madoff Ponzi scheme. In 2013, the company was valued at USD 6 billion, and last summer at USD 20 billion.

Reed Elsevier is rapidly bidding farewell to the ‘periodicals’ it was once so well known for. Instead it will focus on an entirely new business with substantially higher profitability.

Hunger for data

Not only publishers are seeing a future in trading and analysing data, explains Sander Klous, managing director of the Big Data Analytics department at KPMG. More companies are interested in data about their clients. ‘It can obviously help you improve your existing processes, but their application can also lead to a better understanding of the needs of clients and, in response, lead to new services and products.’

Klous cites the example of a large insurance company that recently announced it would offer clients a discount on their premium in return for their data. ‘Better analysis can eventually limit the risks to your policyholders. That could lead to fewer insurance policies, but it can also lead to new services that future clients may be waiting for.’

New strategy

According to Klous, the by-catch from choices companies make, sometimes appears more important than the original goal. He uses the example of Dutch telecommunications provider KPN, which decided some years ago to offer the Spotify music service with mobile phone contracts. After years of decline, client numbers are on the increase again. Why? Precisely because KPN offers Spotify to its mobile phone subscribers.

These kinds of alliances will more frequently play a role in successful business cases, Klous believes. ‘It’s about smart working together instead of doing everything yourself. Does such a partnership work? Yes, absolutely! And if it no longer works next year, you go your separate ways.’

This flexible attitude towards partnerships, but also in the interpretation of data, is new to many companies but, according to Klous, essential for success. ‘Look at hotel site Booking.com. While there may be better sites, Booking is extremely quick at analysing data, finding solutions and implementing them. This is how they continue to lead the way in innovation.’

Would you like to know more? Contact Sander Klous.

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